Derivative - Speculative or Investment

Derivative products are PROXIES to the "underlyings". If we do not want to invest in a big capital outlay, the best exposure will be to invest in derivative. Derivatives are wrongly abused to speculate for capital gains. The negative publicity of derivatives are accounting classification has contributed bad image.

Derivative products when used correctly and properly will yield much better returns than owning and operating a physical brick and mortar business. The risks when owning a brick and mortar business is due to exposure to the following  to produce the final products:

1. Large capital requirements  2. Manpower management 3. Raw material sourcing, pricing and shipment logistics. 4. Currency volatility 5. Operational issues and maintenance 6. Tax 7. Competition 8. Market demands 9. Regulatory changes 10. Insurance 11 Financing and operational cost 12. Sales and Purchase will take months to complete if one decides to acquire or divest

Investing in the derivative circumvent all the above and reduce all the above risks.

If one is able to change the mindset and perception of derivative products, this is the right avenue to invest.

It depends on how one approach and strategize to maximize the tools available

  

What R u Doing? Or What R u suppose to do?

The best part about making decision in the financial markets is  you can do either one of the following:

1) SHORT or LONG (SELL or BUY)

2) SCALP or Do NOTHING

When and why do you want to SHORT or LONG? When and why do you want to SCALP or DO NOTHING?

If you can't feel the market pulse, whatever you do is no different from GAMBLING. Educated decision making means using available resources to minimize risk and increase return. There is no room for HOPE when you are making educated analysis. When you are gambling .... technically you are HOPING everything turn out alright.

When you can feel market pulse, you will know whether (1) or (2) is the right decision to take. Otherwise you will see your outcomes fluctuate between PROFIT and LOSSES. This confirms whatever you are doing is nothing but LUCK when it turns in your favor.

If you can consistently clock 80% profitable trades in frequency and value, you have got a winner. The only thing you need to do is to think if you want to turn your 20% loss into a winner. Understand why you record the losses and under what conditions. The next time you see or feel similar situation developing.... do not take positions if you do not have answer(s) or solution(s)!

You can't change GAME RULES but you can change the way you play within the rules to suit your style! 

Doing for the sake of DOING!

Many people in life has a MOTTO the Nike slogan - Just Do it!

When you do something for the sake of doing it, tick the checklist "DONE" than most likely you will remain status quo for a long long long long time. How many will seriously think and question what you have been doing and improve on what you are doing? Few or minority.

When you do something, to improve what you are doing, you got to start thinking if you can do it differently. We can practice and continue to practice. Without practice, you are destine to fail. When you practice, do it properly and correctly. If you are not getting the results you expect or anticipate, than there is no doubt you have done it wrongly and improperly! Logical?

All the rules in investing and trading are NOT "HOLY" unbreakable LAW. They can be broken and challenged provided you have a good valid legitimate reason(s) to do so. Correct! Some of these rules might not suit your style and approach. The rules suit the authors and not necessarily you! You are the ultimate beneficiary of the positive or negative outcomes! Not the authors!

Overvalue or Undervalue are very extremely dangerous terms to describe prices. Market is rule by EMOTION and emotion can run for a long time as much as prices can remain over value or under value for a long time. When EMOTION rules, LOGIC reasoning is OUT! When emotion rules we can either exit and rest or join the party while it is hot! My normal approach is to exit and look for opportunities that blends with my style. To be able to do so means I must have different markets to trade. It is highly unlikely that ALL different markets will be in the EMOTIONAL Euphoria Illogical Linearly at the same time, same magnitude and same timing!

Sometime it is like dancing CHA-CHA when CHA CHA music is on. Try dancing WALTZ on a CHA-CHA music and you know you are out of steps!

Are you concern about being RIGHT? Are you concern about being WRONG? Are you concern about PICKING TOP? Are you concern with PICKING BOTTOM? You should not be concern with all these if you have the tools and strategy to help you navigate safely with low risk. 


 

CPO - Plantation stocks

There are many ways people make decision on "how" to invest. More often you will end up listening to some recommendation from people who haven't even toil their hands in the industry. Take the case of plantation stocks. You will be listening to back seat (desk) analyst telling you their recommendations.

Sometime you will end up listening to people you come in contact the wonder oil tree! The plantation or small holding profits blah blah blah.

My principle is to investigate the truth and nothing faster, simpler and more accurate than to layout the prices to see if there is correlation across.

The fist conclusion is the correlation between CPO prices and stocks is NOT super positive correlated. I will say that the correlation are POSITVE - NEGATIVE - NEUTRAL depending on the period.

KLK - broken away or decouple from CPO
IOI & SIME - NEUTRAL with CPO
    
Investing requires more than just reading and listening to others. Do yourself a big FAVOR ... check the historical prices and see if others opinions and prices correlate!

Summarizing the GAME! - Yes it is a GAME

Distill learning into useful concepts and guidelines. Observe and understand daily market action in a competitive environment. The ultimate and degree of success depends on the effort of the individual. We are dealing with “probable” outcome with facts to make decisions. The business of “prediction” is a matter of putting oneself into the path of “optimum probabilities”.

The art of learning to time the market requires the trader’s mental attitude to be flexible and independent. Appraise the market on a continuous daily basis. Too often individuals and advisory stop listening to the market and begin telling the market what to do with disastrous results!

Flexible and independent seems easy but difficult to attain and apply to avoid being swept by the mainstream opinions. Independent thinking requires objectivity and logical. Anything that is subjective and illogical should be totally avoided. Emotional barrier will continue to inhibit one’s ability to think independently.

Determine market LONG, INTERMEDIATE and SHORT term trend. Analyze WEEKLY and DAILY chart including 4-hours Intra-day (if available). Are all the 3 different time frames in unison (tandem)? Are they conflicting? Smaller time frame is the building blocks for bigger time frames. 

What are the indicators reviews for LONG, INTERMEDIATE and SHORT term trend. 

How reliable are the indicators in the past? How reliable are these indicators in varying market conditions (UP-DOWN-SIDEWAY-BEGINNING-MIDWAY-ENDING)? 

When does the indicators “lag”, “ahead” or “on-time” with the varying price trends?      

Do you feel you should be invested at all times? 

Check the upside potentials and downside risks. What are your requirements? 

Which product suits your requirements? Stocks, Options, Index, Commodities?

Determine your entry points and exit levels! To act prematurely requires careful planning and management. 

Are you too close to the market? Are you too far from the market? 

Do you let your emotions run influenced by what you see on the prices? 

Many prophets and gurus have predicted the market in the past, present and will be predicting in the future! Our tendency is to look at the present assuming it will last forever! The best analyst in the world is within you if you are able to think objectively and independently without influenced by emotion or news.   

IT IS NEVER ABOUT TIME

What does it takes to be "top"?

To be No1 Chef, athlete or any profession, it is not a matter of how long it will take you to reach your destiny. It is not about your time spent in the industry or profession. It is about how much passion, and commitment one gives to quality research and trials. It is about lots desire of self-questioning.

One can be 20 -30 years doing the repetitive mundane tasks and remains the same without improvements for 20 - 30 years. Or one can be a few months or a few years and totally improve the tasks.

What matters is the QUALITY of completed tasks! Human tends to equate job titles, years of "experience" as "know something"! Whether that person knows or don't know something, the results will speak!

It is never about time ... it boils down to your initiative!

Have a great weekend and great week      

CPO - SOYBEAN - SOYOIL Visual comparison

What type of correlation do you see across all the 3 commodities above?

How often are they correlated?

Listening to commentary versus the evidence!

Normal Bell distribution chart

The key challenge for most if not all traders and investors is to develop or find a reliable and profitable system. The myriad stock market theories readily available is NOT perfect because there will be period(s) that will not be reliable and not profitable. 

It is better to develop a system that extracts the strengths of different theories and formulate a new approach that suits your risk profile.

A perfect system will be able to help you ride the trend and provides market bearing within a trend. One should go back to the basic the purpose or intent of chart analysis. 

Is the intent of chart analysis to determine BUY/SELL or determine market bearing or position? 

Yes, I was mislead to believe using chart to find BUY and SELL! From the start to ending of a trend, there are many BUY/SELL signals. Between the start to the end of the trend, visually we can see most of the time is not at the beginning or the end but rather “in-between” full of volatilities. It is how we manage these volatilities and profiting from the “in-between” matters.

The normal bell distribution chart above shows only a small portion of the time trend is at the peak or bottom! Most of the time is “in-between”. How and where are you going to focus your effort and resources managing your position(s)?